Hedge Funds: BlackRock To Back Up ESG Rhetoric With Action

Environmentalists welcome BlackRock CEO Larry Fink’s warning to companies on ESG compliance.

Change is afoot at BlackRock, the world’s largest asset manager. The firm is finally veering around to using its enormous financial and investment clout to push for climate action, according to Reuters.

BlackRock CEO warned in his annual letter to investee CEOs, titled “A fundamental reshaping of finance,” that “climate change has become a defining factor in companies’ long-term prospects,” and that markets have been slow to reflect the growing global concerns on climate change.

Climate risk and capital allocation

Climate risk is investment risk, Fink warned. “I believe we are on the edge of a fundamental reshaping of finance.”

“Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself,” Fink wrote. “In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.”

We all must confront climate change

“Every government, company, and shareholder must confront climate change,” Fink said. All investors, along with regulators, insurers, and the public, need a clearer picture of how companies are managing sustainability-related questions.

Fink also said that company directors should be held accountable for a company’s inertia on climate-related risk.

They would also be held responsible for not providing sustainability disclosures.

He warned companies: “We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.

BlackRock’s new approach

BlackRock’s new, harder line on climate action and ESG compliance is in marked contrast to its stance, for instance, at Exxon Mobil’s annual meeting on May 29 last year – it backed all but one of 10 directors up for election and opposed all but one of seven shareholder proposals.

Investors, institutions and regulators are also demanding more from companies and banks. According to Reuters, institutional investors in Barclays last week filed a resolution to cease financing firms that are not in compliance with the Paris climate accord.

Meanwhile, inflows into ESG and sustainable-focused funds rose to $20 billion in 2019. That was up four times from the level in 2018. This showed investors’ rising preference for investing in companies that are ESG-friendly.

Related Story:    ESG: Corporate Borrowers Beware; Banks Screening for ESG, Says Fitch

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January 16, 2020

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